Resolute Energy (REN) is a company that I’ve covered in-depth for my Marketplace offering. However, for this article, I’d like to particularly focus on its cash burn and leverage. Forge River Research mentioned in December that Resolute would burn cash with a three rig drilling program even at $65 oil. This is true for 2018, but I will show below that its situation markedly improves in 2019. At high-$50s oil it should be able to grow exit rate production by approximately 38% while reaching breakeven cash flow. At lower oil prices such as $50, it can reach breakeven cash flow while growing exit rate production by around 12%.
I’d argue that given Resolute’s relatively productive acreage and its upcoming $525 million 2020 debt maturity, it is best served in the current favorable oil pricing environment by continuing with a three rig drilling program in both 2018 and 2019.
2018 Capital Expenditures Affect 2019 Production
If Resolute proceeds with a three rig drilling program in 2018, it is going to see more production benefit from that spend in 2019 compared to 2018. I estimate that total 2019 production from wells completed in 2018 will exceed total 2018 production from those wells by around 15% to 20%. Part of the reason for that is that the average 2018 well will probably have less than six months of production in 2018 compared to a full year of production in 2019.
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